Category: Economics
Noah Cowan interviews Tyler Cowen
He is from Brown University, we met at a tacqueria, here is the interview, here is one bit from it, from me:
Popular culture is not nearly pro-science enough…. It should be much higher status to be in science. This would boost the rate of innovation. I think people privately can just choose to respect science more. In a sense it’s a free lunch! You don’t have to spend money, people just have to actually believe science is really good. So that’s what I advocate. And that’s a question of role models and exposure when you’re young. I think TV shows are very important… Star Trek and even Gilligan’s Island I think made science cool to a lot of people. I think President Obama actually has done a pretty good job of being a pro-science role model and how he talks about science. His powers are limited but I think he actually gets this pretty well, because he’s made a real concerted attempt rhetorically to work that into what he’s about. I think historically, America has not been all that pro-science, but we invented the atomic bomb, we industrialized in this fantastic manner. In a bunch of ways pro-science and nationalism should overlap. Being the first country to put a man on the moon gave a huge boost to science. That boost has proven temporary, much to my dismay.
Here are bits and pieces on the very smart Noah Cowan, who was a Jeopardy champion at a very young age.
Call me a moral hazard meanie…
Pensioners who need help being helped back to their feet after a fall at home will be charged £26 by their local council.
Tendring District Council said it would introduce the fee as part of its Careline service for elderly people who require home care.
An elderly rights campaign group has described the charge as “shocking” and equivalent to a ‘falling fine’.
The £25.92 annual charge means a carer will come to pick an elderly resident up after a fall.
…”These people will have no other option but to pay because if they don’t, they’re going to be lying there on the floor aren’t they?” he added.
Here is the full story. Do keep in mind that the number of phone calls will exceed the number of people who require public sector assistance.
In which I try to explain the logic of discontent
Or at least part of it:
Consistent with those points, I would say the road widening is wonderful for boosting throughput — that is, it gets more people and cars onto the road. Yet it’s mediocre or worse for improving the quality of life of the typical resident. An economist, engineer or technocrat typically believes that boosting throughput is important, but voters usually are less impressed.
Western democracies are encountering more problems that have this logical structure and bring an analogous clash of values…
It’s no accident that so many of the gains available today involve throughput. If you widen a road, more people will drive on it. If you open up a border, more foreigners will come. If you build more in a well-to-do city, new residents will pour in and make it more crowded. These days there is always someone knocking at the gates because of all of the global talent that has been mobilized.
And that is part of the logic that elected Donald Trump and drove Britons to vote to leave the European Union. It’s well known in economics that when prices and opportunities change, it is the elastic factors of production (those that can change their plans readily) that gain the most, and the inelastic factors that are most likely to bear losses. Insiders and long-term residents are so often the inelastic ones while outsiders and newcomers have the greater willingness or ability to adjust.
That is from my Bloomberg column, there is much more at the link.
Thomas Sowell is stopping his column
Here is his statement, excerpt:
After enjoying a quarter of a century of writing this column for Creators Syndicate, I have decided to stop. Age 86 is well past the usual retirement age, so the question is not why I am quitting, but why I kept at it so long.
It was very fulfilling to be able to share my thoughts on the events unfolding around us, and to receive feedback from readers across the country — even if it was impossible to answer them all.
Being old-fashioned, I liked to know what the facts were before writing. That required not only a lot of research, it also required keeping up with what was being said in the media.
During a stay in Yosemite National Park last May, taking photos with a couple of my buddies, there were four consecutive days without seeing a newspaper or a television news program — and it felt wonderful. With the political news being so awful this year, it felt especially wonderful.
This made me decide to spend less time following politics and more time on my photography, adding more pictures to my website (www.tsowell.com).
For a relevant pointer I thank Charles Jackson.
Floating exchange rates and tariffs
Not long ago I mentioned that a joint export subsidy and import tax would be offset by an appreciation of the real exchange rate. It’s worth pondering whether such results are the same for fixed and floating rates.
In the simplest model, the choice of exchange rate doesn’t matter. The real terms of trade adjust to the subsidy/tax mix under either regime, with the same final equilibrium.
That said, you might think that goods prices in international trade are nominally sticky in a way that exchange rates are not. Indeed you would be right, noting we don’t have a completely clear idea how much delivery lags and service quality changes sub in for some of (not all) the real price movements.
But there is a subtler difference as well. In a world of floating exchange rates, terms of trade move around more, in real terms, than if exchange rates were fixed. Call it noise, bubbles, or whatever, but sometimes nominal exchange rates have a “mind of their own,” and real exchange rates move much of the way with them.
For that reason, companies that engage in international trade have to be more robust to possible “taxes” — which include unfavorable exchange rate movements — than under the fixed rate regime. As a quick shorthand, I would say those companies need to have more market power to put up with the exchange rate volatility, though you can give the required corporate properties a few different twists, typically involving fixed costs, sunk costs, option values and the like rather than just market power in its simplest conception (it’s complicated.)
In other words, floating exchange rates, especially when there is a historical experience of ongoing real exchange rate volatility, will mean companies are more tariff-robust.
This is one reason why the Trump protectionist talk, while it is 110% bad, and bad for American foreign policy as well, and bad for uncertainty, and bad bad bad bad bad, and sometimes connected to bad bad bad people as well (did I say bad? It’s BAD!), won’t quite have the negative economic impact that many people think.
Think back to the mid-80s, when the USD went from 3.45 Deutschmarks to 1.7 Deutschmarks in what, less than two years’ time? That was the equivalent of a huge tax on Mercedes-Benz as an exporting firm. Did Mercedes like that? No. Did they manage? Well, mostly, sort of. Of course they had a fair amount of market power at the time, they would have less today.
A five percent tariff, relative to the built-in adjustments possible in light of changes in floating exchange rates, is for the most part manageable, at least on narrow economic grounds. Much of that five percent ends up as a tax on the monopoly profits of exporters. You can google and read up on “exchange rate pass-through.”
You will note that some of this argument draws on earlier research by Paul Krugman, though I am not suggesting he necessarily agrees with my application or interpretation; here are his recent remarks.
The foreign policy and presidential signaling and uncertainty-related issues, not the narrow economics, are still the main problem with a five or ten percent trade tax, and they are reason not to go down this route. But it is worth being clear on the economics. The oversimplified statement of the neglected insight here is “floating exchange movements tax trade all the time.”
U.S. Economic Ills are Cultural, Too
That is the title and topic of my latest Bloomberg column.
Promotions and gender-specific divorce risk
We show that promotions to top jobs dramatically increase women’s probability of divorce, but do not affect men’s marriages. This effect is causally estimated for top jobs in the political sector, where close electoral results deliver exogenous variation in promotions across job candidates. Descriptive evidence from job promotions to the position of CEO shows that private sector promotions result in the same gender inequality in the risk of divorce.
The paper is by Olle Folke and Johanna Rickne, via James Feigenbaum.
The wisdom of Garett Jones
On wage subsidies:
True, would likely boost employment rates. But note: if it works, it means current low employment rates are largely supply-side & voluntary.
Here is the link, and here is Garett’s follow-up tweet. Here are previous installments in the series.
I would note that it is oh so hard for people to keep consistent views on labor markets (e.g., minimum wage vs. wage effects of immigration, or how about minimum wage vs. nominal wage stickiness?). Those moods and emotions keep on getting in the way…
How to short the market
Here are a variety of links, please note this not investment advice from me and I am not myself short the market. Still, 85% of my Twitter feed seems to be short the market, in fact radically short, so I thought I should blog (descriptively, not prescriptively) on this topic at least once and report what they are doing.
I am worried about the impact of the stronger dollar, here is Adam Tooze on that topic.
Beware the powerful sports car hedge fund manager
We find that hedge fund managers who own powerful sports cars take on more investment risk. Conversely, managers who own practical but unexciting cars take on less investment risk. The incremental risk taking by performance car buyers does not translate to higher returns. Consequently, they deliver lower Sharpe ratios than do car buyers who eschew performance. In addition, performance car owners are more likely to terminate their funds, engage in fraudulent behavior, load up on non-index stocks, exhibit lower R-squareds with respect to systematic factors, and succumb to overconfidence. We consider several alternative explanations and conclude that manager revealed preference in the automobile market captures the personality trait of sensation seeking, which in turn drives manager behavior in the investment arena.
That is from a new paper by Stephen Brown, Yan Lu, Sugata Ray, and Melvyn Teo, and for the pointer I thank the excellent Kevin Lewis.
Those new service sector jobs, supply and demand Spanish ham slicing edition
The 55-year-old is regarded as the world’s best ham slicer in the world, and he charges accordingly for his services – a reported $4,000 to slice a leg of ham.
Floren, as he likes to be called, has sliced ham for a number of celebrities, including President Barack Obama, Robert De Niro, or David Beckham, and for his majesty King Juan Carlos of Spain. He has performed his jamon-slicing art at the Oscars, Hollywood private parties and at casinos in Las Vegas and Macau. Throughout the year, he follows the Formula 1 circuit, cutting ham for VIPs in the paddocks and lounges of the top racing teams.
Slicing machines are apparently out of the question, as far as jamon enthusiasts are concerned, as heat generated by the friction can alter the taste of the ham and melt the fat, thus ruining the whole experience. But while professional ham slicers are present at any decent cocktail party or event in Spain, they usually make around $250 per ham leg. That’s not nearly enough for them to make a living, which is why most of them have multiple jobs. Florencio Sanchidrián, on the other hand, charges around $4,000 for cutting a leg of ham, a process that takes him around an hour and a half to complete.
And this:
“I think it is quite wrong for a ham cutter speak English,” he says.
Here is the full story, and for the pointer I thank the estimable Chug.
Douthat and Dalio on the Trump administration
Here are Ross Douthat’s reading suggestions for the Trump years (NYT), I ordered what I haven’t already read. And here is Ray Dalio on the Trump administration, better than most of what you will read on the topic. Here is a short excerpt:
The question is whether this administration will be a) aggressive and thoughtful or b) aggressive and reckless. The interactions between Trump, his heavy-weight advisors, and them with each other will likely determine the answer to this question. For example, on the foreign policy front, what Trump, Flynn, Tillerson, and Mattis (and others) are individually and collectively like will probably determine how much the new administration’s policies will be a) aggressive and thoughtful versus b) aggressive and reckless. We are pretty sure that it won’t take long to find out.
The piece also offers data on Trump’s appointees, hard to excerpt but worth going through.
You don’t have to be a supporter (Dalio sees big risks, as I do, and Douthat has been a consistent opponent) to feel that so much of the discourse has become remarkably uninteresting, mostly because of a preponderance of self-righteousness over analysis. America’s intellectual class is failing us, with these two gentlemen being notable exceptions to that generality.
China professional bridesmaid markets in everything those new service sector jobs
Against this backdrop, it has become a huge ask to invite someone to be a bridesmaid, and many only agree to act as one reluctantly. Consequently, brides are hiring professional bridesmaids.
Professional bridesmaids have become a routine option for wedding packages, currently offered by more than 50 wedding-planning firms in China. A professional bridesmaid would be required to act as the make-up artist, to drink alcohol, and to fend off rude guests on behalf of the bride, among many other tasks. They are required to perform what the sociologist Arlie Hochschild termed “emotional labor”: faking smiles, engineering a joyous atmosphere, and taking part in traditional stunts that are otherwise considered too vulgar for many.
Depending on the level of “difficulty” of the services they provide, a professional bridesmaid is paid between 200 yuan (around £22) and 800 yuan (around £90) per wedding. Many professional bridesmaids work on weekends, in addition to their routine weekday jobs, in order to generate extra income.
Here is the full story from Yang Hu, much more detail at the link.
Acting like a potential wife and thus blunting demonstrated ambition?
Leonardo Bursztyn, Thomas Fujiwara, and Amanda Pallais have a new paper on this topic (pdf). Here is the abstract:
Do single women avoid career-enhancing actions because these actions could signal personality traits (like ambition) that are undesirable in the marriage market? We answer this question through two field experiments in an elite U.S. MBA program. Newly-admitted MBA students filled out a questionnaire on job preferences and personality traits to be used by the career center in internship placement; randomly selected students thought their answers would be shared with classmates. When they believed their classmates would not see their responses, single and non-single women answered similarly. However, single women reported desired salaries $18,000 lower and being willing to travel seven fewer days per month and work four fewer hours per week when they expected classmates would see their answers. They also reported less professional ambition and tendency for leadership. Neither men nor non-single women changed their answers in response to peer observability. A supplementary experiment asked students to make choices over hypothetical jobs before discussing their choices in their career class small groups; we randomly varied the groups’ gender composition. Single women were much less likely to select career-focused jobs when their answers would be shared with male peers, especially single ones. Two results from observational data support our experimental results. First, in a new survey, almost three-quarters of single female students reported avoiding activities they thought would help their career because they did not want to appear ambitious. They eschewed these activities at higher rates than did men and non-single women. Second, while unmarried women perform similarly to married women in class when their performance is kept private from classmates (on exams and problem sets), they have lower participation grades.
The reference is through Jennifer Doleac and Mark Koyama.
Will China beat the United States in the fight against air pollution?
There are now pollution red alerts in at least 24 cities in north China, so are things really hopeless in the Middle Kingdom? I say no. That is the topic of my latest Bloomberg column, here are some excerpts:
One famous paper, by economists Gene M. Grossman and Alan Krueger, found that (in current dollars) the turning point for environmental improvement comes in “almost every case” when countries reach the range of $17,000 to $18,000 in per capita annual income. Current Chinese per capita income can be plausibly estimated at over $14,000 per year. That means China may not be far from starting to clean up its air, and indeed air quality is already one of the major political issues in China.
The Chinese government already responds to pollution problems with factory closings and automobile restrictions more quickly than it used to, and in general there is better data and more transparency from policymakers. The U.S. Embassy in Beijing reports pollution improvements for particulate matter over the last year. Over the last two years, there have been suggestions, admittedly debatable ones, that China’s evolution into a service-sector economy means that the turning point already has been reached.
What about the U.S. and its history of fighting air pollution?
By my estimates (see the column), the United States started cleaning up at a per capita income of at least 28k (in current dollars), in the mid-1960s, arguably later than that date. In other words, if the Chinese waited to start cleaning up their air until they were about twice as rich as is currently the case, they still would be matching the pace of America.